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Mass customization must replace mass production

The Pentagon’s acquisition system, with roots that stretch back to World War II, is rapidly approaching a precipice. In the Cold War, the acquisition process was deliberately structured around stable development timelines and long production runs. There were exceptions to this pattern, such as the Polaris IRBM/SSBN ballistic missile development, but the exceptions simply proved the point that the regular process was not especially responsive to a rapidly changing strategic or technological environment.

Even — and perhaps especially — the professionals who manage the acquisition system recognize that it is increasingly ill-suited to meet today’s strategic challenges and tomorrow’s battlefield environment. The process lacks flexibility, and the link between research and development (R&D) and fielding is too long, despite the best efforts of officials in Office of the Secretary of Defense and the services. It is time to apply new business models to defense.

Even during the Cold War, critics of the acquisition system could see that the Defense Department was paying more and more in return for less and less capability. It was a standing joke that eventually, Calvin Coolidge would have his revenge: There would be only one highly sophisticated airplane to be shared among our aviation forces.

The Pentagon endured this frustrating contradiction because the nation could afford it and because no one knew what to do to fix it. Consider the many studies over the decades that focused on the acquisition system and made recommendations to improve it. What was the result of all that effort? Not much.

Witness the shocking price increases in recent years for both military space systems and Navy ships. Costs to build the Space-Based Infrared System High Satellite have skyrocketed to $10 billion from $4 billion in only a few years. Likewise, the estimated price of the Navy’s futuristic DD(X) destroyer has ballooned to more than $3 billion per vessel. Does the DD(X) really have that much more capability than the current models of the Arleigh Burke class?

Space and shipbuilding are just two of many areas across defense acquisition where long-established procurement methods are increasingly inadequate to attain the speed in learning and cycle times essential for information- age operations. To increase speed, weapons development must be based on cost and time, upending the tyranny imposed today by the requirements process as the entry fee for any new system.

Both Defense Department professionals and members of Congress understand the magnitude of acquisition’s troubles, but what’s to guarantee that the solutions being proffered will be more than bandages to a system in desperate need of dramatic surgery? Acting Deputy Defense Secretary Gordon England is launching a quick assessment of the department’s entire acquisition apparatus, seeking concise recommendations for immediate implementation. That is a laudable first step.

Congressional committees are likewise concerned about the alarming jump in Pentagon weapon systems costs and the department’s inability to quickly get new capabilities into the hands of soldiers and Marines as gaps are revealed in ongoing combat operations. Congress is imposing cost caps on Navy ship construction and issuing new restrictions limiting what can be procured using development funds.

Unfortunately, these efforts, however necessary, remain rooted in “correcting” or “fine-tuning” the existing structure, the foundation of which is already crumbling. Attempting to squeeze ever-greater efficiencies from flawed processes is not the answer. A wholesale leap to new metrics based on fundamentally different rule sets is now required. The fact that the department manages to squeeze less and less real capability from a procurement system consuming more and more resources is clear evidence that new thinking is essential.

Two alternatives

For decades, the problem of defense acquisition has been put as a choice between two fundamental alternatives: directed acquisition and competitive acquisition. The former dispenses with competition; the government tells a specific contractor what to make, when to have it ready and how much profit the vendor will make. The latter uses competition to reduce the risk for the Defense Department. Directed acquisition has been used in emergencies and in peacetime to acquire highly classified technology. Competition is the norm, by law. However, effective and fair competition is possible only within a set of comprehensive rules, and the rules governing the acquisition of major systems have become suffocating. Competition is the norm, by law. However, effective and fair competition is possible only within a set of comprehensive rules, and the rules governing the acquisition of major systems have become suffocating.

Is there a way out of this dilemma? Yes. Remember that information-age metrics of military power are notably different from those of the industrial age, since power in the information age is derived from a much broader and widely available set of sources. Like a commercial enterprise, the Defense Department must adapt to the new information world and change its metrics accordingly. The new metrics, on which a substantially new acquisition structure must be based, are: creating and preserving options; employing higher transaction rates; achieving robust learning rates; and generating overmatching complexity.

Options provide the flexibility to accommodate the dynamics of complex operational and business environments. When the Pentagon prematurely picks winners and losers for the sake of cost-efficiency in weapon systems development, both industry and the government lose. What’s lost is the ongoing competition for ideas, which promotes institutional learning and leads to a flowering of future options. When the department, guided by its current acquisition philosophy, prematurely picks the single “best” ship or aircraft or UAV design, that decision destroys the intellectual knowledge resident in the “losing” industrial design team (or teams) and makes it tougher for that company (or companies) to participate in future competitions.

Transaction rates are akin to what takes place at the checkout counter. The department should be working to ensure the register is ringing up a lot of sales but with a positive margin attached to each one. The defense industry should be clamoring for higher transaction rates. Such rates keep design teams engaged, which sharpens competition. We want to reward industry for pushing “stuff” — materiel, vehicles, equipment, weapons — out the factory door and into the hands of operating forces. Higher transaction rates directly translate into higher learning rates and, when combined, these two metrics yield more options — that is, more strategic options for U.S. commanders, more tactical options for troops in the field and a broader range of business options for the department and industry. That is what overmatching complexity is all about.

BRAINPOWER

To achieve this vision, the department must take a radically different approach to the management of research and development. There is a marked difference between simply mandating a fixed budgetary amount for R&D — say, 3 percent of spending — and establishing a true strategic focus to guide investments. The great power of America is its human capital, its brainpower. As the department moves into an era of uncertainty, discovery and invention hold increasing importance.

To spur innovation, R&D must be turned into a profit center, rather than a sunk cost, for industry. The Defense Department must therefore begin to buy more capability out of research and development. This can be accomplished through a much broader embrace of operational experimentation. Stunning PowerPoint briefings are not going to alter anyone’s thinking or lead to breakthroughs, but quickly building small numbers of experimental articles and getting them into the field can generate life-changing experiences, thereby jump-starting innovation across the department. Lessons stemming from this continual experimentation cycle can be quickly fed back to industry to be incorporated into limited production, while iterating the next leap in capability.

Initiatives such as Operationally Responsive Space, Project Sheriff and Stiletto, under the auspices of the secretary’s Office of Force Transformation, are designed with that overarching philosophy. In space, the objective is to develop microsatellites that meet the emergent requirements of war fighters and not Pentagon-based bureaucracies. Sheriff’s approach is to integrate, for the first time, lethal and nonlethal capabilities on a single platform, providing soldiers and Marines with more options for dealing with the chaos of urban combat. Stiletto will yield the largest all-composite vessel yet built in this nation, providing special operations personnel with broadened options for achieving their missions.

More of these types of relatively inexpensive, timely initiatives should be underway across the department and among all of the regional combatant commands — not just U.S. Joint Forces Command. We must surmount the intellectual hurdle we maintain as an institution that says experimentation can only take place in quiet backwaters or not unnecessarily burden operational forces. That approach is now bankrupt. Those are exactly the kinds of forces that benefit most from the speedy introduction of new capabilities. Their boot-level testing of experimental articles is absolutely critical to boosting transaction rates, learning rates and generating new options.

To operate successfully in the information age, the Defense Department must shed its fixation on large-scale and long-duration production runs. Those are increasingly quaint notions of the rapidly receding time when this nation mobilized its industry and economy to win a war of attrition. Mass customization must supersede mass production as the department’s watchword for acquisition. The department is steaming at flank speed into an acquisition tsunami. But that’s a choice, not an inevitability.

Leaders in the Defense Department and Congress know this, and it’s time for them to take action.

Thomas Hone is the assistant director for risk management at the Pentagon’s Office of Force Transformation and an author on the history of naval innovation.